Investor Questions, Answered

A 1031 Exchange is a provision in the U.S. tax code (Section 1031 of the Internal Revenue Code) that allows you to defer paying capital gains tax when you sell an investment or business property and reinvest the proceeds into another “like-kind” investment property. Instead of recognizing the gain and paying taxes right away, you roll those proceeds into a new property that meets IRS guidelines.

The key idea is “exchange,” not sale. As long as you follow the rules, use a qualified intermediary, respect the deadlines, and reinvest properly, you can keep your money working for you in real estate instead of sending a significant portion to the IRS in the year of the sale.

The sequence is fixed, and each step has to happen in order.

1. Engage a qualified intermediary before the relinquished property closes. After closing it is too late.
2. Close the sale. The net proceeds go directly to the intermediary, never to you.
3. Identify replacement property in writing within 45 calendar days of that closing.
4. Close on the replacement property within 180 days of the sale, or by your tax filing deadline including extensions, whichever comes first.
5. Report the exchange on IRS Form 8824 with the return for the year of the sale.

The work that determines whether this goes well happens before step one: understanding the tax exposure, settling entity and title questions, and knowing what replacement options exist. Once step two is done, the clock does not stop.

Two timelines are critical in a 1031 Exchange:

45-day identification period

From the date you close on the sale of your old (relinquished) property, you have 45 calendar days to identify your potential replacement property or properties in writing. This identification must be delivered to your qualified intermediary or other party allowed under IRS rules.

180-day completion period

You must close on your replacement property or properties within 180 days of the sale of your relinquished property, or by your tax filing deadline (including extensions), whichever comes first.

These time frames run concurrently, not one after the other. Day 1 of the 45 days and Day 1 of the 180-day period are the same: the day you close on the sale. Missing either deadline will usually disqualify the exchange and trigger immediate capital gains taxes.

Identification must be unambiguous and in writing, signed, and delivered to your qualified intermediary by midnight of day 45. You may use any one of three rules:

1. Three-property rule. Identify up to three properties of any value. This is the rule most exchanges use.
2. 200 percent rule. Identify any number of properties, so long as their combined fair market value does not exceed 200 percent of the value of what you sold.
3. 95 percent rule. Identify any number of properties of any value, but you must actually acquire at least 95 percent of the total value identified. This one leaves almost no room for a deal to fall out, and is rarely used.

You can revoke and re-file an identification any time before day 45. After day 45, the list is fixed. If everything on it falls through, the exchange fails.

No. If you “touch” or take constructive receipt of the sale proceeds, the IRS will treat it as a taxable sale instead of an exchange. That means you would owe capital gains tax in the year of the sale.

To avoid this, you must work with a qualified intermediary (QI). At closing, the net proceeds from the sale go directly to the QI, not to you. The QI then uses those funds to purchase the replacement property for you. This structure keeps you from having actual or constructive receipt of the funds and preserves your tax deferral.

A Delaware Statutory Trust (DST) is a passive real estate ownership structure that allows multiple investors to collectively own institutional-quality real estate. Investors hold a beneficial interest in the trust rather than owning property directly, which makes DSTs eligible as replacement property in a 1031 exchange. DSTs are professionally managed, require no active involvement from investors, and are commonly used by real estate owners seeking passive income, diversification, and tax deferral.

The honest version of both sides.

What DSTs do well

• Eligible replacement property for a 1031 exchange, so the deferral is preserved
• Genuinely passive — no tenants, no maintenance calls, no property management
• Access to larger, institutionally managed assets that are out of reach individually
• One exchange can be split across several offerings, giving diversification by sponsor, property type and geography
• Debt is non-recourse at the trust level, with no personal guarantee and no lender underwriting of the investor
• Closing can happen in days, which matters when the 45-day clock is running
• Interests divide cleanly among heirs and generally receive a step-up in basis

What you give up

• Illiquidity — there is no public market and no reliable way out before the sponsor exits
• No control over operations, financing, or the timing of the sale
• Fees are higher than owning a building directly
• The trust cannot raise capital or restructure debt if the property runs into trouble
• Distributions are not guaranteed and the entire investment can be lost
• Available only to accredited investors, and only while an offering remains open

Whether that trade is worth making depends far more on what you want the next fifteen years to look like than on any single feature of the structure.

Minimums are set by each sponsor and stated in the offering documents. Across the market, $100,000 is a common minimum for 1031 exchange proceeds and $25,000 is common for cash investments outside an exchange, though both vary by offering.

Minimums matter more than they first appear, because they determine how many separate DSTs an exchange can practically be divided across. An exchange of $400,000 has fewer diversification options than one of $2 million.

DST fees are generally built into the offering and not billed separately to investors. These can include acquisition fees, financing costs, asset management fees, and disposition fees, all disclosed in the Private Placement Memorandum (PPM). While fees are higher than owning property directly, investors are paying for professional management, passive ownership, and 1031 eligibility.

Section 721 of the Internal Revenue Code allows property to be contributed to a partnership in exchange for partnership interests without recognizing gain at the time of the contribution. In an UPREIT structure, the partnership is the operating partnership of a real estate investment trust, and the interests received are operating partnership units.

Applied to a DST, the sequence usually runs: you complete a 1031 exchange into a DST that the REIT intends to acquire, hold it, and at the appropriate point the property is contributed to the REIT’s operating partnership and your beneficial interest converts into OP units. Those units generally track the REIT’s value and pay distributions, and can typically be converted to REIT shares or redeemed after a holding period.

More detail on our 721 DST investments page.

The exchange generally fails and the full gain is recognized in the tax year the relinquished property was sold. There is no partial credit for having tried, and no provision for a missed deadline caused by a seller backing out, a lender pulling financing, or an appraisal coming in short.

The one narrow exception is disaster relief. When the IRS issues a notice covering a federally declared disaster area, Revenue Procedure 2018-58 can extend the deadlines for affected taxpayers. That is a specific published relief, not something you can apply for on your own facts.

Not if you are willing to pay tax on the difference. To defer the gain in full, three things generally need to be true:

• The replacement property is equal to or greater in value than the property sold
• All of the net equity from the sale is reinvested
• Any debt paid off at the sale is replaced — either with new debt, or with additional cash brought to the closing

Fall short on any of them and the shortfall is taxable. That is not automatically the wrong outcome; some investors deliberately take cash out and accept the tax on that portion.

Boot is anything you receive in the exchange that is not like-kind property. It comes in two common forms:

• Cash boot — sale proceeds you take out rather than reinvest, including money used at closing for items the IRS does not treat as exchange expenses
• Mortgage boot — debt relief, where the loan paid off on the property you sold exceeds the debt you take on with the replacement

Boot is taxable to the extent of your realized gain. Mortgage boot catches people off guard because no cash ever changes hands; the tax arrives anyway. It can generally be offset by bringing outside cash to the replacement closing, or by using leverage in the replacement property.

Yes. A partial exchange defers tax on the portion reinvested and recognizes tax on the boot. Investors use this when they want liquidity for a specific purpose — paying down other debt, funding a gift, covering a tax bill — and are comfortable with the cost of that liquidity.

The arithmetic is worth doing carefully. Because boot is taxed to the extent of gain, taking a modest amount of cash out of a highly appreciated property can produce a tax bill that is a larger share of that cash than people expect.

Section 1031(f) restricts exchanges between related parties. In broad terms, where you exchange with a related party, both sides generally have to hold the property they receive for at least two years. If either disposes of it inside that window, the original deferral is unwound and the gain becomes taxable.

Related parties include family members and entities in which you hold a controlling interest. The rules are stricter where you are acquiring property from a related party than where you are selling to one, and the IRS has challenged structures it viewed as using a related party to sidestep the intent of the section.

There are exceptions, including for dispositions caused by death or involuntary conversion. If any part of your exchange involves a relative or an entity you control, raise it with your CPA before the identification is filed.

Qualified intermediaries are not federally licensed or regulated, and only a few states impose requirements on them. Because your entire sale proceeds sit in their hands for up to 180 days, diligence matters. Reasonable questions to ask:

• How are exchange funds held — segregated qualified escrow or qualified trust accounts, or commingled?
• What fidelity bond and errors-and-omissions coverage is in place, and at what limits?
• Are dual signatures required to move funds?
• How long have they been in business, and who owns the firm?
• Is the interest earned on your funds disclosed and credited?

Your closing attorney, CPA, or real estate broker cannot serve as your QI if they have provided services to you in the two years before the exchange. That disqualified-person rule is strict.

The direct cost of the exchange itself is modest relative to the tax being deferred. Qualified intermediary fees for a straightforward forward exchange commonly fall in the several-hundred to low-four-figure range, sometimes with an additional per-property charge where more than one replacement is involved.

Reverse and improvement exchanges cost substantially more, because an exchange accommodation titleholder has to take and hold title, often with its own entity formation, insurance and carrying costs.

Those are the exchange fees. They sit alongside the normal transaction costs of the sale and purchase, and, where the replacement is a securitized offering such as a DST, alongside the costs disclosed in that offering’s Private Placement Memorandum.

A reverse exchange is where you acquire the replacement property before selling the relinquished one. Because you cannot own both at the same time and still qualify, an exchange accommodation titleholder takes title to one of the properties and parks it, under the safe harbor in Revenue Procedure 2000-37.

The parking period is capped at 180 days. Reverse exchanges are meaningfully more expensive than a forward exchange, require the buyer to fund the acquisition without sale proceeds, and need a lender willing to work with the parking structure. They solve a real problem — a replacement property you cannot afford to lose — but they are not a casual choice.

An improvement exchange lets you use exchange proceeds to build or renovate the replacement property, with the value of the completed improvements counting toward the reinvestment requirement. Like a reverse exchange, it runs through an exchange accommodation titleholder.

The constraint that governs everything: only improvements actually completed and in place within the 180-day window count. Money sitting in a construction escrow on day 180 does not. Anything not built by then is treated as boot.

This is one of the most common and most time-sensitive problems in the exchange world. The partnership is the taxpayer, so the partnership can exchange — but an individual partner cannot exchange their partnership interest, because partnership interests are expressly excluded from Section 1031.

The usual approaches involve restructuring the ownership before the sale, most often by distributing tenant-in-common interests to the partners so each becomes a direct owner of real property who can then exchange or cash out independently. These structures carry real tax risk around the holding requirement and around whether the restructuring is respected, and the IRS has challenged them.

Yes. A beneficial interest in a Delaware Statutory Trust is treated as an interest in real property for exchange purposes under Revenue Ruling 2004-86, and each DST counts as one identified property.

Because of that, DSTs are commonly used in two ways: as the primary replacement, or as a backup identification alongside a direct property purchase. Availability is not guaranteed — offerings close when they are fully subscribed — so a backup identification is only as good as the inventory available on the day you need it.

They are different things that are often compared because both offer passive exposure to real estate.

• 1031 eligibility. A DST interest is treated as real property and qualifies as replacement property. REIT shares are securities and do not — you cannot 1031 into a REIT.
• What you own. A DST typically holds one property or a small defined pool, disclosed before you invest. A REIT holds a portfolio that changes over time.
• Liquidity. Publicly traded REIT shares trade daily. DST interests do not trade at all. Non-traded REITs sit in between, with limited redemption programs.
• Term. A DST has a finite life ending at the sponsor’s exit, usually five to ten years. A REIT is perpetual.
• Tax reporting. DST investors receive a grantor letter reflecting their share of rental income and depreciation. REIT investors receive a 1099-DIV.

The 721 UPREIT structure is where the two meet: a DST whose property is later contributed to a REIT operating partnership, converting real property ownership into units. That conversion ends 1031 eligibility permanently.

Tenant-in-common ownership was the dominant 1031 replacement structure before Revenue Ruling 2004-86 made DSTs viable, and the differences explain why the market moved.

• Number of investors. TIC structures are limited to 35 co-owners. A DST has no such cap, which allows smaller minimums.
• Decision-making. TIC co-owners typically must agree unanimously on major decisions, including a sale or refinancing. DST investors have no voting role at all, which removes the deadlock risk along with the control.
• Lender treatment. TIC co-owners are generally underwritten individually and may sign carve-out guarantees. DST debt is non-recourse at the trust level with no investor underwriting.
• Flexibility. A TIC can refinance and re-lease; a DST cannot, because of the Revenue Ruling 2004-86 restrictions.

TIC structures still exist and occasionally suit an investor who wants a say in the asset. For most passive exchanges the DST has become the default.

A DST typically follows a clear lifecycle: acquisition, hold, and exit. After investors close into the DST, the sponsor manages the property and distributes income during the hold period, which is usually 5–10 years, depending on the asset and market conditions. At exit, the property is sold, and investors may receive cash (taxable) or use the proceeds for another 1031 exchange or, potentially, a 721 UPREIT, depending on the structure.

Income is generated from the underlying real estate, typically from rent collected from tenants, and distributed to investors, most often on a monthly or quarterly basis.

Distributions are not guaranteed and can vary based on property performance, occupancy, expenses, and financing terms. A portion of the income may be tax-deferred due to depreciation, depending on your individual tax situation.

DSTs are considered illiquid investments. There is no public market to sell your interest, and investors should plan to remain invested until the sponsor executes an exit. While limited secondary options may exist, they are uncommon and typically involve discounts, so DSTs should only be used for capital that does not require near-term liquidity.

DST interests are offered as private placement securities and are available only to accredited investors and accredited entities. For an individual, that generally means a net worth over $1 million excluding the primary residence, or income over $200,000 individually or $300,000 jointly in each of the last two years with a reasonable expectation of the same in the current year. Certain professional certifications can also establish accreditation.

Accreditation is verified before you can subscribe. If you are unsure whether you qualify, confirm it with your CPA or attorney before you build an exchange plan around a DST.

Availability shifts with the market, but the recurring categories include multifamily, industrial and logistics, single-tenant net lease retail, self-storage, medical office, senior housing, student housing, and occasionally more specialized assets.

What is available on any given day is a function of what sponsors have raised capital for and what has not yet closed to new investment. This is one of the practical reasons that starting the conversation before your sale closes is useful — inventory on day 40 of your identification period may not be the inventory you saw on day 1.

Yes, and many investors do. Splitting across multiple DSTs allows diversification by sponsor, property type, geography, and debt structure, which is difficult to achieve when replacing one building with one building.

The constraints are the identification rules and the sponsors’ minimums. Under the three-property rule you can name three; under the 200 percent rule you can name more, subject to the value cap. Plan the identification list around the diversification you actually want, not the other way around.

Revenue Ruling 2004-86 is what makes a DST interest eligible for 1031 treatment, and it does so by requiring that the trustee have essentially no discretion to act like an operator. The commonly cited restrictions prohibit the trust from:

• Accepting new capital contributions after the offering closes
• Renegotiating existing loan terms or borrowing new funds
• Reinvesting proceeds from the sale of the property
• Making capital expenditures beyond normal repairs, minor non-structural work, and legally required improvements
• Investing cash held between distributions in anything other than short-term debt obligations
• Retaining cash reserves beyond what is needed, rather than distributing them
• Entering into new leases or renegotiating existing ones, except in limited circumstances

This is not a technicality. It is a genuine risk factor: if the property runs into trouble, the trust cannot recapitalize, cannot restructure debt, and cannot re-tenant on materially new terms. Sponsors address this with a springing LLC provision that converts the trust if a specified event occurs — but that conversion typically ends the 1031 eligibility of the interest.

Many DSTs carry non-recourse debt at the trust level. Investors are not personally liable for it, do not sign a guarantee, and are not underwritten by the lender. Your share of that debt counts toward the debt replacement requirement in your exchange, which is often the specific reason a leveraged DST is selected.

Leverage cuts both ways. It magnifies the effect of both good and poor property performance, and it introduces refinancing risk if a loan matures before the sponsor exits. When reviewing an offering, the loan maturity date relative to the stated hold period is one of the first things worth checking.

No. Distributions depend on the performance of the underlying real estate and can be reduced, suspended, or discontinued. Projected distribution rates shown in an offering are estimates based on assumptions disclosed in the PPM, not commitments, and actual results have differed from projections across the industry.

Some offerings fund early distributions partly from reserves or from offering proceeds rather than entirely from property operations. Where that is the case it is disclosed, and it is worth finding.

Yes, including the entire amount invested. DSTs carry the full range of real estate and private placement risks: vacancy, tenant default, rising expenses, interest rate and refinancing risk, oversupply in a submarket, declining property values, illiquidity, sponsor execution risk, and long hold periods with no ability to exit.

The risk factors section of the PPM is the most important section in the document and is the one investors are most likely to skip. Read it before the projections, not after.

The Private Placement Memorandum is the offering document. It contains the full description of the property, the structure, the sponsor, the economics and the risks, and it governs the investment. A typical DST PPM runs well over a hundred pages.

Where we start when reviewing one:

• Risk factors, in full
• The estimated use of proceeds table — how much of each dollar reaches the real estate
• Debt terms, particularly the maturity date against the projected hold period
• In-place occupancy and rent versus what the projections assume
• Lease rollover schedule and tenant concentration
• Breakeven occupancy
• The sponsor’s prior program performance, including any programs that were restructured or suspended distributions

Sponsor quality is the variable with the widest range of outcomes, and the one least visible from the brochure. Questions worth answering before the property questions:

• How long have they operated, and through how many market cycles?
• How many programs have gone full cycle, and what were the results — including the ones that did not go well?
• Have any programs suspended distributions, been restructured, or converted to a springing LLC?
• Does the sponsor co-invest its own capital alongside investors?
• What does their reporting cadence look like once you are invested?
• What is the strength of the sponsor’s balance sheet if a property needs support?

Our DST investments page sets out the framework we use in more detail.

Considerably faster than a direct property purchase. Because the property is already acquired and the structure is already in place, subscription and funding can often be completed in a matter of days once suitability review and accreditation verification are complete.

That speed is why DSTs are so frequently used when a primary replacement property falls out late in the identification period. It is not instant, though, and it depends on the offering still being open.

A DST is treated as a grantor trust for federal tax purposes, so you are treated as owning an undivided interest in the underlying real estate rather than an interest in a partnership. Investors typically receive an annual grantor letter or substitute statement showing their pro-rata share of rental income, operating expenses, interest, and depreciation.

That information generally flows onto Schedule E rather than arriving as a Schedule K-1. Sponsors’ delivery timing varies, and some arrive late enough to warrant extending a return. Confirm the treatment with your CPA.

You generally have the same choices you had at the original sale: take the proceeds in cash and pay tax on the gain, complete another 1031 exchange into a new DST or a direct property, or — if the structure permits it — move into a 721 UPREIT.

The important limitation is control. The sponsor decides when to sell. You will receive notice, not a schedule you set. Investors who need to coordinate an exit with a specific date or a specific life event should weigh that carefully before committing.

Yes. Because the beneficial interest is treated as real property, a DST exit can be exchanged into direct real estate, another DST, or a combination. Nothing about entering a DST permanently commits you to passive ownership.

The practical difficulty is timing. Your 45-day clock starts when the DST sale closes, and you are working from the sponsor’s timetable rather than your own. Investors who intend to return to direct ownership generally start looking well before the sale is finalized.

DST interests are inheritable and generally receive a step-up in cost basis upon death, which can significantly reduce or eliminate capital gains taxes for heirs. Beneficiaries will continue receiving income – when the DST sells, they can cash out or do another 1031 exchange. For many investors, DSTs are an effective estate-planning tool for simplifying real estate ownership for heirs.

It describes the practice of exchanging repeatedly over a lifetime and never recognizing the deferred gain, on the basis that the property receives a step-up in basis at death and the accumulated deferral is eliminated for heirs.

Two caveats. First, this depends on the step-up remaining in the tax code, and proposals to modify it have surfaced repeatedly over the years. Second, the federal estate tax exemption was set at $15 million per person under the 2025 federal tax legislation, indexed for inflation from 2027 — but several states impose their own estate taxes at far lower thresholds. The strategy works, but it is a planning assumption rather than a certainty.

Usually, yes. Beneficial interests can be divided among beneficiaries in whatever proportions an estate plan specifies, without anyone needing to agree on a sale price, a management arrangement, or a buyout of a sibling.

This is one of the more common reasons owners in their seventies and eighties look at DSTs. The tax deferral is the visible benefit; removing a future family negotiation over a rental property is often the one that actually motivates the decision.

That depends on your estate plan, and it needs to be settled before the property goes under contract rather than during escrow. What matters for the exchange is taxpayer continuity: whoever is treated as the taxpayer on the sale needs to be the taxpayer on the purchase.

Revocable living trusts and single-member LLCs are generally disregarded for tax purposes and usually do not disrupt an exchange. Changes in entity form close to a sale can. Bring your estate attorney and CPA into the conversation early.

We work with accredited real estate owners who are considering selling, and help them evaluate whether an exchange makes sense and what the replacement options look like. In practice that means running the exit analysis, screening DST, 721 and oil and gas offerings against a consistent framework, reviewing offering documents, and coordinating with your qualified intermediary, CPA, attorney and broker so the pieces line up against the deadlines.

Securities are offered through Concorde Investment Services, LLC, member FINRA/SIPC. GCA 1031 is independent of CIS.

For DST and other private placement investments, the selling compensation is paid by the sponsor out of the offering and is fully disclosed in the Private Placement Memorandum. It is not billed to you separately or deducted from your account.

That compensation is part of the offering’s overall cost structure, which is exactly why the use of proceeds table in the PPM is worth reading closely. We will walk through it with you rather than around it.

No. Those are separate roles and they need to stay separate. A qualified intermediary holds your exchange funds and documents the exchange; we help you evaluate what to do with those funds. We work alongside QIs regularly and can point you toward established firms, but the selection is yours.

No. We are not accountants or attorneys, and nothing on this site or in a conversation with us should be treated as tax or legal advice. Every situation described here has facts that change the answer.

What we can do is make sure the right questions reach your CPA and attorney early enough to matter, and translate between the offering documents and the professionals advising you.

No. We are not affiliated with any sponsor and do not have a preferred one. We review offerings from across the market and apply the same screening criteria to all of them, which means some sponsors and some offerings do not make it through.

The screening framework is set out on our DST investments page.

Before. Ideally before the property is even listed, and at minimum before it closes.

The reason is arithmetic. Once the relinquished property closes, the 45-day identification clock is running and it cannot be paused. Everything that needs to happen first — understanding the tax exposure, deciding whether an exchange is even the right answer, settling any entity or title questions, selecting a QI, reviewing offerings, completing accreditation — is far easier with months of runway than with a few weeks.

We regularly work with owners who are still a year out from selling and simply want to understand the options.

Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. The current list of states in which we offer 1031 exchange and DST investment services appears in the footer of every page on this site.

If your state is not listed, get in touch anyway — a response may be delayed until the appropriate registration is obtained or an exemption is determined.

It is a conversation, not a pitch. We generally want to understand the property, roughly where the gain and basis sit, your timeline, whether there are other owners involved, and what you actually want the money to do afterward — income, simplification, diversification, something for the next generation, or some combination.

Frequently the outcome of a first call is a list of questions for your CPA rather than an investment recommendation. There is no obligation and no cost.